I. Introduction

In general, a representative who makes a declaration on behalf of another person must make it clear that he is not acting on his own behalf but on behalf of the person he is representing – the so-called principle of publicity (Offenkundigkeitsprinzip), § 164 German Civil Code (Bürgerliches Gesetzbuch, BGB). This does not necessarily have to be done explicitly, but can also be made clear through conclusive behavior (implied). In such cases, the requirements for the recognizability of the action for the company are determined by the rules of interpretation in §§ 133 and 157 BGB: The action as a representative must therefore be objectively recognizable to the business partner.
This also applies to the managing directors of a limited liability company (GmbH), who are appointed to represent the company by law pursuant to § 35 para. 1 sentence 1 Act on Limited Liability Companies (Gesetz betreffend die Gesellschaften mit beschränkter Haftung, GmbHG). They must also express their intention to act not on their own behalf but on behalf of the company.
The BGH had to rule on the validity of a termination of employment of a managing director of a GmbH. The focus was on the distinction between personal and corporate actions and the recognizability of acting on behalf of the GmbH to third parties.

II. Power of representation of the GmbH managing director in light of the principle of publicity (Offenkundigkeitsprinzip)

The company is represented by the managing director in and out of court (§ 35 para. 1 sentence 1 GmbHG). “Representation” means any legal transaction on behalf of the company vis-à-vis third parties. The effects of a legal transaction concluded by the managing director of the GmbH on behalf of the company therefore affect the company.
The power of representation means that the managing director has the “legal power to represent” the company and is unrestricted and unrestrictable vis-à-vis third parties, § 37 para. 2 sentence 1 GmbHG. The general requirements for representation set out in Sections 164 et seq. BGB, such as the aforementioned principle of publicity (Offenkundigkeitsprinzip), also apply to representation by the managing director. Usually, the principle of publicity (Offenkundigkeitsprinzip) is already satisfied when legal transactions are concluded that are recognizable to outsiders as being linked to the purpose of the company. In addition, in case of doubt, mere membership of the company may be sufficient for the declaration to be attributed to the company. Nevertheless, it is always advisable to act explicitly – otherwise, the managing director runs the risk of becoming a party to the contract personally or of incurring apparent liability.
However, if the managing director has a dual role within the company as a shareholder-managing director, the attribution of the declaration is not immediately clear. This problem arose in the case decided by the BGH.

III. Decision of the BGH

1. Facts

The case concerned a GmbH in which the plaintiff and his two brothers, TF and JF, each held a 1/3 share. The plaintiff also served as managing director with sole power of representation alongside TF.
At a shareholders’ meeting, it was decided to dismiss the plaintiff as managing director and to terminate his employment contract without notice. The articles of association provided for joint representation by the shareholders and the management for measures affecting the relationship with the management, such as the conclusion and termination of employment contracts. In the shareholders’ resolution, TF was instructed to declare the termination to the plaintiff.
TF then declared the termination without notice to the plaintiff, using official company letterhead, which contained a pre-printed form with the legal company details at the bottom of the page and, among other things, identified TF as managing director. However, TF did not sign with the explicit addition of “managing director.”
For this reason, the plaintiff contested the validity of the termination. He argued that the termination had not been validly declared on behalf of the company, as the required representation by the management had not taken place.

2. Decision and legal assessment

After the plaintiff had been successful in the first and second instances, the BGH overturned the ruling. The decisive factor in BGH’s decision was that the declaration was made on the company’s business letterhead, so that the objective declaratory value is that the managing director acted on behalf of the company.
With regard to the rules of interpretation in §§ 133 and 157 BGB, the Senate stated that the declaratory value of a document is not limited to its wording, but that the objectively declared intention of the parties as inferred from it must also be taken into account. In other words, if a managing director makes a declaration on the GmbH’s business letterhead that legally identifies him as the managing director without, however, expressly signing in this capacity, the declaration shall nevertheless be deemed to have been made on behalf of the company. An express signature as managing director is not required if the position within the company and the action on behalf of the company are already apparent from the business letterhead.
The decision of the BGH is thus in line with the recognized rules on the principle of publicity (Offenkundigkeitsprinzip). The representative does not have to act explicitly on behalf of another party, but can also bring this to the attention of the business partner through conclusive behavior. The decisive factor is always whether the representation is recognizable for legal transactions.
If, as in the present case, the business document of the GmbH is signed, it is apparent and obvious to the recipient of the declaration that the managing director is acting on behalf of the GmbH. In addition, in the case of so-called company-related transactions, the declared intention of the parties involved is, in case of doubt, that the transaction should not affect the acting party, but rather the represented company. This may also apply if the managing director expressly acted on behalf of the shareholders at the same time, as required by the articles of association. Even in the case of this dual representation, the interpretation may be that the managing director acted in both capacities, first as representative of the shareholders and then as managing director on behalf of the company.
When interpreting the declaration, it must also be noted that the managing director to be dismissed was banned from the premises in the same letter. Issuing a ban from the premises is a classic responsibility of the managing director and may be an indication that the managing director also acted on behalf of the company when pronouncing the dismissal. Overall, the circumstances of the individual case are decisive for the assessment. The BGH therefore overturned the appeal ruling and referred the case back to the appeals court for a new hearing.

IV. Outlook and consequences for practice

The ruling of the BGH shows how important the external appearance of declarations in business transactions is for their legal validity. A declaration of intent made by the management on the business letterhead of a GmbH is generally to be interpreted as having been made on behalf of the company, even if there is no explicit reference to representation. The decisive factor here is the objective recognizability of the action for the company, even without explicit signature as managing director.
Nevertheless, it is advisable and strongly recommended to disclose actions taken in the capacity of managing director by means of a clear reference in order to avoid possible invalidity of the declaration or personal liability and to prevent disputes. Although the ruling provides more clarity in the interpretation of such declarations, companies should continue to ensure that declarations are clear and formally correct. Competent legal advice can help to avoid unnecessary costs and disputes.